What Is Escrow?
Also known as: Escrow Service, Escrow Account
In short
Escrow is an arrangement in which a payment or asset in a transaction is held by a neutral third party or a mechanism until the conditions agreed upon by the parties are fulfilled.
Similar to the legal concept of a trustee, this method is used to solve the trust problem between parties who do not know each other: the buyer deposits the payment with the escrow agent, the seller delivers the product, and when delivery is verified, the payment is transferred to the seller. In the event of a dispute, the escrow agent decides based on the evidence.
In the crypto world, escrow appears in several forms. On the peer-to-peer (P2P) trading platforms of crypto exchanges, the seller's coins are locked by the platform and released when the buyer's bank transfer is confirmed. In large-volume over-the-counter (OTC) transactions, brokerages can take on the escrow role. A 2-of-3 multisignature (multisig) address that requires the signature of any two of the keys of the buyer, the seller and an arbitrator can also act as escrow.
Escrow's weak point is the trust placed in the escrow agent. Fake escrow services are a common scam method, especially on social media and in messaging groups. To reduce this need for trust, escrow smart contracts, in which the conditions are executed by code, have been developed.
Last updated: · This content is for information purposes only and is not investment advice.